Negative interest rate

What is likely going to happen to RE prices?
Rising initially as interest rate declines toward negative and then drop and drop and drop?

Why would RE drop? RE is driven by population growth, household formation, and home ownership rate.

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Even if mortgage rate goes to 0%, you still need to pay the principal. A mortgage rate drop of 4% to 0% will double your purchase power, so housing price may double if everything else stays the same.

I would prefer a high inflation and high mortgage rate environment. Home price can increase much faster with high mortgage rate.

In a 0% mortgage rate and low inflation environment, it would be really hard to make money since appreciation would be very limited

Isn’t aging population means eventual reducing population, and reducing household formation?

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The population is always getting older. It’s only an issue if future generations are smaller in size. The US population will keep growing.

I think the bigger risk is the poor are having far more kids than the upper middle class and wealthy.

Trump demands Fed to cut interest rates to zero 'or less'

Krishna Memani, Invesco’s vice chairman of investments, wrote last week that the “goal of the central bank at the end of the day is to focus on growth and employment, and not to ensure that enough high yielding assets exist in the economy to meet some threshold of claims.”

The emphasis on higher yields “is a moot point as asset returns cannot be generated without underlying economic growth,” Memani said. That argument dovetails with Trump’s emphasis on the Fed needing to do more to bolster growth.

“If you frame the argument along these lines, you can see why in a low demand environment that low and even negative yields may be needed to support growth. There is nothing magically different about negative nominal yields,” Memani added.

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““As a highly-leveraged property developer, Trump is thinking about negative rates from the perspective of a borrower,” said Paul Ashworth, chief U.S. economist at Capital Economics on Wednesday.”
As a president who inherited a nation 19 trillion in debt - and with a brand new unfunded entitlement on top of the two big underfunded ones - of course he is thinking from the perspective of a borrower. All future presidents will. They have no choice.

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Thanks hanera. Did not notice this thread

What does the “low demand” mean? Is US already in low demand mode?

Econ. Low demand = low growth. 2nd question: No.

Negative interest rates are coming and they are downright terrifying

A recent note by JPMorgan lays out nine unintended consequences; including lower bank profitability, lower credit creation, paradoxically higher rates in some instances (banks need to make up for lower income), reduced liquidity and functionality of credit markets, increased deficits in pension funds, and even exacerbation of wealth and income inequality.

Bank of America Merrill Lynch (BAC) postulates that, “…if banks ever start passing negative rates onto retail depositors, the effect would be similar to inflation — cash today would be worth more than cash tomorrow. Consumers might respond by consuming more and saving less, boosting GDP growth in the short run. But this “substitution effect” could be offset by what economists call a negative “income effect”: expected erosion of savings could actually make households more conservative, pulling back on consumption both today and in the future.”

Here’s Bank of America Merrill Lynch again: “Government yield curves and credit spread curves are losing their information content. In our opinion, the fact that the 3m10y or 2y10y UST spreads have inverted is less of a reflection of U.S. recession risks and more of a reflection of the desperation for yield by foreign investors flocking into USD denominated bonds as bond yields turned more negative in Europe and Japan.”

Translation: Trying to interpret the U.S. Treasury yield curve becomes meaningless.

It would probably reduce wealth inequality. Savers who have the wealth would get a negative return. Borrowers who are poor would benefit a lot.

Except that the savers are the ones who will get the great rates and be able to lever up on cheap debt. Just look at the difference between rates on jumbo and conventional loans…ironically the subsidized product is more expensive.

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Except the wealthy don’t use cash to store their wealth. The poor and lower middle class do. So wealth inequality would be exacerbated.

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60% of Americans have under $500 saved. They are borrowers not savers. They’ll benefit from negative rates.

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Hate to break it to you but with < $500 saved and bad credit they’re not getting a negative rate. The credit cards, subprime and payday loans that the folks you’re referencing can qualify for may go down 1% or so but aren’t going negative. The major driver of those rates is default risk not the 10 yr treasury.


They won’t get negative but they’ll get lower rates than they currently have. It could be a game changer for the $1T+ of student loan debt. Reducing rates on that would help a lot of the people with no savings.

I doubt they go lower. Credit card and payday loans are usually 18 percent or more. One or two percent negative on Mortgage rates or Treasury bills won’t make any difference.

I don’t understand why deadbeats on student loans don’t just pay them off with credit cards and then default on the cards. Student debt can’t be cancelled in bankruptcy. But other debt can.

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Won’t happen. Like credit card debt. Unsecured loans.